2018 expected to be the year Sydney's office vacancy will tighten to lowest level since the 2000 Olympics

Property Markets / Outlook

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2017 has been an interesting year for the Sydney CBD office market. JLL research recorded the lowest vacancy rate (6.0%) in 3Q17 since the first quarter of 2008 when it was 5.7%.

JLL’s Head of Office Leasing - NSW, Daniel Kernaghan said “The past year has seen the Sydney CBD office market go from strength to strength. Vacancy is now the lowest level in close to a decade, and average effective rents across both prime and secondary stock have had double digit growth for a third straight year.”

“In 2017, we will see the highest annual withdrawal figure for office space since 1997. As a long term trend in the Sydney CBD, for every two square metres of office space built, one square metre of office space has been withdrawn. Over the past two years this ratio has been one to one. As a result, the Sydney CBD now has limited contagious space options, which has led to strong growth in net rents and a sharp decline in incentives.”

JLL’s Head of Research – Australia, Andrew Ballantyne said, “We have said for a number of years that the Sydney CBD vacancy rate is tightening to the lowest level since the 2000 Olympics. We expect that 2018 will be the year that forecast is realised with the Sydney CBD vacancy rate compressing to 4.6%.

“We are living in the age of experience and a desire for a diverse range of experiences in any given day is shaping occupier decision-making in the office sector.”

So far, in 2017, JLL Research has recorded 20,400 square meters of take-up from tenants centralising their operations into the Sydney CBD.

Mr Ballantyne said, “Organisations are relocating to the CBD as they have access to a wider pool of workers, as well as better public transport connectivity.

“However, part of the drive is explained by the age of experience. Workers want access to a wide range of retail, food & beverage and health & fitness options at different stages of the working day. A CBD location offers this diversity of amenity and a well-located office can assist with the attraction and retention of knowledge workers.

“The expansion of co-working operators is also linked to the age of experience theme. Co-working appeals to the largest organisations right down to sole proprietors. We have observed that a significant part of the client base for co-working operators is people that were working from home, but want the experience of being around like-minded professionals in an engaging environment.”

JLL Research undertook a study to assess the impact of co-working on the Sydney CBD office market and found that co-working operations contributed to 21,300 square meters of net absorption in 2017.

Going into 2018, tightening vacancy and a dwindling number of options for large space users will be the dominant theme next year in the Sydney CBD office market.

“The momentum effect will push net effective rents higher in the Sydney CBD over the next 12 months. We expect that effective rents have the potential to increase by a further 9% over 2018,” concluded Mr Ballantyne.

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